Fundrise Lets Common Folk Invest in Posh Real Estate Ventures

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Fundrise Lets Common Folk Invest in Posh Real Estate Ventures

Old-fashioned banker holding red cloud over financial district

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Once upon a time, you had to be relatively wealthy to invest your money legally in riskier big-ticket ventures. That's beginning to change now that new rules stemming from the 2012 JOBS Act have been officially implemented. Equity crowdfunding platforms will launch next year to let anyone play venture capitalist by investing in startups. Now a startup itself wants to let you get a taste of another asset class once available only to the better heeled among us: commercial real estate.

Founded in 2010, Fundrise has helped connect mostly accredited investors, typically those with a net worth of more than $1 million, with commercial real estate projects looking for funding—millionaire crowdfunding for real estate. Today, the company is expanding its offerings with a new real estate investment trust that allows anyone in the US to easily invest in a real estate portfolio chosen by Fundrise's team.

'It's no more challenging than buying a book.'

Brandon Jenkins, Fundrise

“We're trying to take the quality from private real estate transactions and make it available to everyone,” says Fundrise chief operating officer Brandon Jenkins.

The idea is relatively simple: Fundrise wants to give even novice non-accredited investors a place to put their money if they want to invest in the real estate sector. At the same time, Fundrise will be using the money to provide loans to real estate projects that might otherwise have difficulty getting them. The company says it is able to do this in large part thanks to Title IV of the JOBS Act, better known as Regulation A+, which went into effect this past June. Regulation A+ allows small businesses like Fundrise to raise capital from non-accredited investors, who can then get a stake, if they comply with the necessary reporting measures.

Like Buying a Book

Fundrise's new fund isn't a completely new concept. Investors have long been able to put their money in private as well as publicly traded real estate investment trusts. For those who can afford it, private equity firms have also long helped wealthy investors find ways to grow their money with smart real estate investments.

Fundrise's fund, however, requires a minimum investment of only $1,000. (The maximum investment allowed for nonaccredited investors is determined by federal regulators and depends on income and assets.) Interested investors will be able to review Fundrise's offering on its website, including details about its planned strategy and the performance record of the management team that will be choosing the projects in which to invest. If you're still interested, you'll be able to invest directly through the site. "It's no more challenging than buying a book," Jenkins says.

Real estate companies, meanwhile, will be able to submit projects seeking funding to Fundrise through a separate portal. Jenkins says that company’s team of underwriters and other professionals reviews the submissions before deciding which projects to back. Jenkins claims the company's in-house tech allows it to review more projects than outfits that don't specialize in real estate.

What We Have Now

At its root, the company says that the benefit of putting money into Fundrise's funds is similar to why novice investors might turn to new robo-investment advisors like Betterment or Wealthfront. Jenkins argues that publicly traded real estate investment trusts are bogged down by middlemen, such as brokerage firms, that take a cut. He says they also lack the level of transparency Fundrise hopes to provide and tend to fluctuate with the stock market.

But University of Chicago Booth professor Joseph Pagliari, whose research focuses on real estate portfolio management, cautions that publicly traded real estate funds already have a lot of the benefits that Fundrise seems to be touting. They regularly file disclosures, report to Wall Street analysts, and don't face sizable fees from brokers. He also says it's unclear how Fundrise will be able to escape the vagaries of the stock market anymore than other such funds.

Jenkins says one way Fundrise will set itself apart is by looking at projects that private equity companies may believe are too small to be worth their while. By connecting smaller projects with smaller-time investors, he says he's confident Fundrise can get better returns for both. The only certainty, however, is that no one knows yet what will happen when anyone can take a whack at becoming a fantasy real estate tycoon.